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July 22, 2013

How to Protect an Idea with a Nondisclosure Agreement (NDA)

What is a Non-Disclosure Agreement and Do I Need One?

Bob was sitting in the tub one day when EUREKA! the idea hit him like a ton of bubble bath: a reality show where celebrities sing popular radio tunes in the shower. Bob, perhaps not the most creative person in the world, is nevertheless enamored with his idea. But Bob lacks both significant contacts in the television industry and the wherewithal to self-produce. He knows he won’t succeed unless he solicits the help of some serious production companies, and that means revealing his idea. And once he reveals his idea, Bob worries, what’s to stop those Hollywood-types from producing the show without him?

Bob wants to protect his idea, but as it turns out, the law protects ideas begrudgingly. Copyright law, usually a bastion of protection for creators, only protects the expression of a given idea, and not the idea itself. In other words, copyright protects the screenplay for a movie about alien invasions, but not the idea of a movie about alien invasions. That’s fantastic for the writer of Alien Invasion 6, but it doesn’t help Bob, whose idea is for a script-less reality television show. Although Bob could write out a full, complete, and expressive treatment of the idea and then register that treatment with the U.S. Copyright Office, the registration would still only protect the treatment, and not the idea.[1]

Undeterred, Bob turns to contract law, and specifically to something called a Nondisclosure Agreement, or NDA. He quickly learns that a contract between the parties is the best way to protect an idea like his. Although the concept is simple—I’ll tell you my great idea if you promise not to steal it from me—in practice, things are more complicated. To be effective at all, an NDA must include some pretty precise language. And even if the NDA contains that language, it still might not be effective if the idea isn’t considered novel, i.e., new and original. Although he is on the right track, clearly Bob still has some hurdles to jump before he can rest assured knowing that his idea is as protected as it can be.

Is the Idea Novel?

Even if an NDA is in place, if the idea isn’t novel, then courts are hesitant to protect it.[2] In one famous case, a producer pitched the idea to combine “the family situation comedy theme with an all-black cast.”[3] A network turned the producer down, but then later developed The Cosby Show. The producer sued the network for developing his idea without compensating him, but lost when the court ruled that the idea was not novel and therefore not protectable because he had “merely combined two ideas which had been circulating in the industry for a number of years.”[4]

Perhaps slightly delusional, Bob believes that his concept is truly novel. But even if he was less certain, proceeding under an NDA, if possible, is still advisable. You never know how a court will rule on the issue of novelty, and the threat of a potentially enforceable NDA still might convince a production company to pay you for your idea rather than risk expensive and lengthy litigation. Also, if you don’t have an NDA in place before you reveal your idea, then you may lose all rights to the idea, or at best have to prove that the idea was so unique that no one else in the world had ever conceived of it.

What Should the NDA Say?

As we discussed earlier, the NDA can’t just say anything. If the production company has agreed to sign it (more on that later), then you want to make sure that what they sign is enforceable. At a minimum, the NDA should require the production company to agree that: (1) the idea is unique and valuable; (2) the idea is proprietary information; (3) the production company will not reveal the idea to others; (4) the production company will not use the idea without permission; and (5) if the production company does use the idea, then it will pay for such use. The NDA may include some other language as well, but these five requirements are the most important, and the most directly related to idea protection.

You Can Lead a Production Company to an NDA…

Bob calls the first production company he comes across and tells them he has an amazing can’t-miss idea (like they’ve never heard that before) he’d love to tell them about if only they sign his NDA. The production company politely informs Bob that it doesn’t accept unsolicited ideas, and generally doesn’t sign NDAs if they do. A new problem emerges: Bob lacks leverage. Why would a production company open itself up to liability by entering into a contract with him? After all, production companies generally work with a number of ideas at the same time. They might already be working on the same concept as the one Bob wants to pitch. Unless the idea is coming from a vetted source, the production company is less likely to agree to even hear the idea, much less sign a legal document.

In fact, if the production company is amenable to hearing the idea at all, it will sometimes require the execution of its submission release form, a document that, among other things, may absolve the production company if they subsequently exploit a similar idea. The submission release form may also state that to the extent the idea is “non-protected property,” the production company is free to use it. Of course, in the absence of an NDA, the idea is “non-protected property,” which means that the production company can use it if it wants to without compensating Bob. Clearly then, Bob has a tough decision to make. He must balance his desire to have his idea heard by a production company capable of producing the idea, with the fear of his idea being stolen. How much is Bob’s idea worth if no production company will agree to his terms of disclosure?

What About an Implied or an Express Contract?

After much thought, Bob decides to abandon the NDA and meet with the production company. There is, however, one last ditch effort Bob could make to protect his idea. Depending on whether he has signed an overly aggressive submission release form, Bob might be able to make certain statements in the meeting with the production company that create either an express or an implied-in-fact contract. To establish a claim for a breach of an implied-in-fact contract, Bob would need to show that: (1) he created the work; (2) he disclosed the work to the production company for sale; and (3) he did so under circumstances that suggest that the production company accepted the idea with an understanding of the value of the work and the conditions on which the idea was tendered.

If Bob can satisfy the above three requirements, then he may have successfully circumvented the production company’s initial unwillingness to contract with him. Because proof is always an issue with oral contracts, after the meeting, Bob should send the production company an email confirming the terms he orally stated in the meeting.[5]

Conclusion

Can Bob protect his idea and convince a reputable production company to listen to it pursuant to an NDA? Maybe. But at the very least, Bob now has the tools to protect his idea or, if he so desires, forfeit such protection if it makes sense to do so. The film and television industry is hard to break into. Rather than dreaming up reality television concepts, the best way to succeed is to meet as many people in the industry as possible and work on productions. That way, when you have your next EUREKA! moment, you’ll have a better sense of who to call, be more knowledge about how the industry works, and hopefully even have some name recognition that will help you to get your foot in the door, hopefully with an NDA in hand. As always, contact us if you have any lingering questions about idea protection, or would like a brand-spanking new NDA of your own.

[1] Registration might not be a total waste. If someone uses the idea without permission, then they might also use some of the protected expression, thus subjecting themselves to copyright law. Also, having a registration on file pinpoints a date of creation, which may prove beneficial in a subsequent claim. Finally, registration is only $35 at www.copyright.gov, so the investment is minimal compared with the potential benefit.

[2] This makes sense: what if you were a production company who signed an NDA with a party, and then the party’s “great idea” was to produce a sitcom about a family. There’s nothing new or interesting about that idea, and so it wouldn’t be fair if the guy with the idea could then stop you from making any sitcom about a family. The “novelty” requirement, therefore, is sort of an escape hatch for a production companies who sign NDAs, only to get pitched the most mundane ideas on the planet.

[3] The producer in this case submitted a proposal, stating in it that if the network picked up the show, he expected to be named executive producer and compensated. The outcome of the case did receive some criticism, and I mention it here just as a cautionary tale of what can happen given certain facts.

[4] On the bright side, for an effective NDA, the idea only has to be novel to the person hearing it, not to the industry as a whole. If the network in the Cosby example had never aired a sitcom before, then the court might have ruled that the idea was novel as to that network, but not to any other network.

[5] If you’ve already signed a submission release form like the one discussed above, then you might not prevail on an implied contract theory no matter what you say in the meeting. Note also that sophisticated production companies are aware of implied contracts, and may try to avoid their creation in the meeting.

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